[Federal Register Volume 77, Number 233 (Tuesday, December 4, 2012)]
[Notices]
[Pages 71848-71850]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-29217]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68308; File No. SR-OCC-2012-21]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing and Immediate Effectiveness of Proposed Rule Changes
to Explicitly State That OCC May Reject a Request for Withdrawal of
Margin or Make an Intra-Day Margin Call in Situations Where a Clearing
Member's Projected Settlement Obligations Could Exceed OCC's Available
Liquidity Resources
November 28, 2012.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on November 26, 2012, The Options Clearing Corporation (``OCC'') filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule change described in Items I, II and III below, which
items have been prepared primarily by OCC. OCC filed the proposal
pursuant to Section 19(b)(3)(A)(i) of the Act,\3\ and Rule 19b-4(f)(1)
\4\ thereunder so that the proposal was effective upon filing with the
Commission. The Commission is publishing this Notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(i).
\4\ 17 CFR 240.19b-4(f)(1).
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I. Self-Regulatory Organization's Statement of Terms of Substance of
the Proposed Rule Change
OCC proposes to explicitly state that OCC may reject a request for
withdrawal of margin or make an intra-day margin call in situations
where a clearing member's projected settlement obligations could exceed
OCC's available liquidity resources.
II. Self-Regulatory Organization's Statement of Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, OCC included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. OCC has prepared summaries, set forth in sections A, B,
and C below, of the most significant aspects of such statements.\5\
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\5\ The Commission has modified the text of the summaries
prepared by OCC.
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A. Self-Regulatory Organization's Statement of Purpose of, and
Statutory Basis for, the Proposed Rule Change
The purpose of the proposed rule change is to adopt certain
interpretations under existing OCC Rules 608 and 609 in order to place
clearing members on notice of situations in which OCC may exercise
existing authority to reject a margin withdrawal request, or to make an
intra-day margin call, including where a Clearing Member's projected
settlement obligations could exceed OCC's available liquidity
resources. For this purpose OCC would consider as liquidity resources
only margin assets in the form of cash. In its sole discretion, OCC
might also consider margin assets in the form of U.S. Government
securities, which could be quickly converted to cash, and/or amounts
that OCC would be able to borrow on short notice under its credit
facility or otherwise.
Rule 609 currently provides that ``[OCC] may require the deposit of
such additional margin by any Clearing Member in any account at any
time during any business day, as such officer
[[Page 71849]]
deems advisable to * * * protect [OCC], other Clearing Members or the
general public.'' Rule 609 further provides that such intra-day margin
calls must be satisfied in immediately available funds within one hour
(or other prescribed time frame) after the issuance of the call.
Ordinarily, clearing members are permitted to substitute other
acceptable forms of margin assets to replace cash collected via an
intra-day margin call. If a sufficient amount of such assets has been
deposited to meet the clearing member's then current margin
requirement, the clearing member may make a request to withdraw any
excess margin pursuant to Rule 608. The return of specific excess
margin assets, including cash, also may be requested, subject to the
Rule's limitation that no clearing member may withdraw margin in any
form or currency in excess of the amount of margin of that form or
currency deposited in the clearing member's account from which the
withdrawal is to be made. However, Rule 608 also provides that ``[OCC]
may, if it deems advisable for any of the reasons described in Rule
609, reject any such withdrawal request.'' Accordingly, in the event
OCC determines that such actions are necessary for the protection of
OCC, other clearing members, or the general public, OCC may require a
clearing member to deposit additional margin in the form of cash
through an intra-day margin call and preclude the withdrawal of some or
all of such assets from OCC's system.
OCC wishes to put Clearing Members on notice of certain specific
circumstances in which OCC may take such actions under Rule 608 and 609
by adopting a similar interpretation under each Rule. Specifically, OCC
wishes to state expressly that it may refuse a margin withdrawal
request or request additional intra-day margin where a Clearing
Member's future settlement obligations could result in a need for
liquidity in excess of available liquidity resources. Such action might
be taken even though OCC has made no adverse determination as to the
financial condition of the Clearing Member, the market risk of the
Clearing Member's positions, or the adequacy of the Clearing Member's
total overall margin deposited in the accounts in question.
A circumstance in which OCC might desire to reject a margin
withdrawal request or make an intra-day margin call to ensure that it
had sufficient liquidity in connection with a pending settlement
obligation involves the ``unwinding'' of a ``box spread'' position. A
box spread position involves a combination of two long and two short
options on the same underlying interest with the same expiration date
that results in an amount to be paid or received upon settlement that
is fixed regardless of fluctuations in the price of the underlying
interest. Box spreads can be used as financing transactions, and they
may require very large fixed payments upon expiration. In this
situation, if much of the margin deposited by the relevant Clearing
Member is in the form of common stock and if the Clearing Member failed
to make the settlement payment, the available liquidity resources might
be insufficient to cover the settlement obligation. In anticipation of
this settlement, OCC might therefore require the Clearing Member to
deposit intra-day margin in the form of cash, or reject a requested
withdrawal of cash or U.S. Government securities, so that liquidity
resources would be sufficient to cover the Clearing Member's settlement
obligations. Under the proposed interpretations, OCC would always
include margin assets of the relevant Clearing Member in the form of
cash in determining available liquidity resources and could, in its
discretion, consider the amount of margin assets in the form of highly
liquid U.S. Government securities and/or the amount that OCC would be
able to borrow on short notice. The proposed interpretations make it
clear that OCC might exercise its authority under these Rules to
address liquidity needs.
OCC believes the proposed rule change is consistent with Section
17A of the Act because it is designed to promote the prompt and
accurate clearance and settlement of securities transactions,\6\
including the safeguarding of securities and funds related thereto, and
to protect investors and persons facilitating transactions by and
acting on behalf of investors. It does so by interpreting OCC's
existing authority to require deposits of additional margin or to
reject requests to withdraw margin, minimize OCC's liquidity risk, and
preserve its liquidity resources. The proposed rule change is not
inconsistent with the existing rules of OCC, including any other rules
proposed to be amended.
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\6\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Self-Regulatory Organization's Statement on Burden on Competition
OCC does not believe that the proposed rule change would impose a
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were not and are not intended to be solicited with
respect to the proposed rule change and none have been received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) \7\ of the Act and Rule 19b-4(f)(1) \8\ thereunder
because it constitutes a stated policy, practice, or interpretation
with respect to the meaning, administration, or enforcement of an
existing rule. At any time within 60 days of the filing of the proposed
rule change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.\9\
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\7\ 15 U.S.C. 78s(b)(3)(A)(i).
\8\ 17 CFR 240.19b-4(f)(1).
\9\ 15 U.S.C. 78s(b)(3)(C).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml), or
Send an email to [email protected]. Please include
File No. SR-OCC-2012-21 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-OCC-2012-21. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent
[[Page 71850]]
amendments, all written statements with respect to the proposed rule
change that are filed with the Commission, and all written
communications relating to the proposed rule change between the
Commission and any person, other than those that may be withheld from
the public in accordance with the provisions of 5 U.S.C. 552, will be
available for Web site viewing and printing in the Commission's Public
Reference Room, 100 F Street NE., Washington, DC 20549 on official
business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of
such filing also will be available for inspection and copying at the
principal office of ICE Clear Credit and on ICE Clear Credit's Web site
at http://www.theocc.com/components/docs/legal/rules_and_bylaws/sr_occ_12_21.pdf.
All comments received will be posted without change; the Commission
does not edit personal identifying information from submissions. You
should submit only information that you wish to make available
publicly. All submissions should refer to File Number SR-OCC-2012-21
and should be submitted on or before December 26, 2012.
For the Commission, by the Division of Trading and Markets, pursuant
to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-29217 Filed 12-3-12; 8:45 am]
BILLING CODE 8011-01-P